6. You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financia

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6. You are preparing to discuss borrowing needs with yourbank's loan officer who asks you to prepare pro-forma financialstatements. Below are the financial statements for the yearjust ended. Your sales department is projecting a 50%increase in sales. Days sales outstanding are expected toimprove to 50. With respect to inventory and accountspayable, assume that purchases will be $11,000,000 and cashpayments will be $10,500,000. The Company expects to invest$2,000,000, net of any depreciation, to expand its storage capacityand achieve scale savings. Accordingly, gross profit marginsare expected to be 20% in the future. Other expenses areexpected to remain the same percentage of sales. Theretention ratio is 50%. For ease of calculation, assumeinterest expense remains the same. Prepare pro-forma financialstatements and determine the amount of borrowing needs, which willbe reflected in long-term debt.
Projected
Cash
400,000
Accts receivable
1,400,000
Inventory
1,800,000
Total current assets
3,600,000
Fixed assets
2,400,000
Total assets
$6,000,000
Accounts Payable
1,200,000
Long-term debt
1,500,000
Total debt
2,700,000
Common stock
1,300,000
Retained Earnings
2,000,000
Total debt & equity
$6,000,000
Projected
Sales
$9,000,000
Cost of sales
7,500,000
Gross profit
1,500,000
Other expenses
800,000
EBIT
700,000
Interest
100,000
EBT
600,000
Taxes (30%)
180,000
Net income
$420,000